ATO ramps up debt collection prosecution post-COVID

He noted that practitioners may be forced to do months or years of work in a short window to bring the client up to date with limited or no records, potentially while serving other clients at a busy time of the year with no prospect of being paid for this work.

“It appears this is a campaign by the ATO to encourage better lodgement. They're essentially cleaning up outstanding lodgements for taxpayers out there,” Archer said.

“Generally speaking, an ATO debt or even outstanding lodgements could be dealt with by putting the company into liquidation. But once the ATO refers someone for prosecution, insolvency won't stop it.”

Earlier this month, the ATO accepted a recommendation from the Australian National Audit Office to set volume targets for small business tax collection.

Since the end of the lodgment amnesty at the end of 2023, one tax lawyer said that he has also seen a ramp-up in debt collection action.

“We're seeing more recovery action by the ATO, especially in that SME market. We've seen the ATO exercise some of the powers that they normally wouldn't have used,” Piper Alderman senior associate in tax disputes Christian Febbraro (pictured, right) said.

Febbraro told Accountants Daily that failing to act on this notice would result in absolute liability, which is sufficient for a guilty conviction. He noted that currently, the number of director penalty notices being issued has increased “far beyond what anyone else could have understood”.

“It's no secret that the ATO has been taking steps to recover its debt, and this appears to be the natural next course of action. To capture those lodgements. Where the debt's not even on the ATO system,” Archer added.

“When a non-compliant client is on your books, the ATO comes to you as the accountant to resolve it. Then you get stuck between the client and the ATO as recovery action ramps up.”

“An accountant – client relationship should be a two-way street. Clients should uphold their obligations to remain clients.”

He recommended that accountants be clear with clients about engagement and standard maintenance for client conduct.

Creating this clarity also consists of recommending the accounting package addressing the client's needs, sending out engagement letters outlining what services are or are not provided, and outlining consequences for non-lodgment or ignoring advice.

Febbraro stressed that taxpayers must engage early with their tax advisers, and practitioners must stay on top of their clients’ lodgment histories and notify them when lodgments are late.

“[In] some instances – and I've seen this first-hand – clients are not aware of their tax return … I [recommend] tax agents and taxpayers alike to engage and engage early,” he said.

On its website, the ATO said that its approach to collecting a debt is guided by a client’s past engagement with the Tax Office, through information collected.

“In some cases, we will use our notice powers to compel you, or a third party, to give the information to us – for example, where our cooperative approach has not worked, or third parties are subject to confidentiality arrangements,” the website said.

“We will usually notify you before making third-party enquiries about your debt. In some circumstances, we won't notify you, particularly when our collection activities could be compromised – for example, if we ask a financial institution about your account details so we can garnishee monies,” the ATO website reads.

“Accountants need to see their role differently. Yes, you act for the client – but you're not there to be the client's mum. You also have obligations to yourself, to your regulatory bodies, and to the ATO that you have to uphold. It's not worth compromising your own position because a client won't meet their own,” Archer said.